Central Bank of Iceland offers to purchase euros and Icelandic krónur

The Central Bank of Iceland is offering to purchase euros in exchange for Icelandic krónur for long-term investment in the Icelandic economy, or in exchange for payment in Treasury bonds. In a statement issued on 14 March 2012, the Bank indicated that it is also soliciting bids on the sale of Icelandic krónur for cash payment in foreign currency. Three forthcoming auctions are an element of the removal of restrictions on movement of capital, as set forth in the Bank’s capital account liberalization strategy, dated 25 March 2011, and in the Bank’s Terms of foreign exchange transactions according to the Investment Programme for capital account liberalisation, dated 18 November 2011.
The Central Bank is offering to purchase up to a maximum of 100 million euros in two foreign currency auctions combined. The auction is subject to the reservation that it is a joint amount for both auctions, and may change accordingly.
In the króna auction, the Central Bank is offering to purchase 25 billion krónur in return for payment in euros. Market makers in the interbank foreign exchange market are invited to act as intermediaries in the transactions.
The Central Bank has reserved the right to raise or lower the above-specified auction amounts.
Concurrent with these auctions, the Central Bank, on behalf of the Treasury, is offering to buy back króna-denominated Treasury bonds. A list of these primary dealers can be accessed on the Central Bank’s website. Financial institutions that have concluded a collaboration agreement with Iceland’s Central Bank may act as intermediaries, and will handle investors’ applications for proposed participation in the auction according to the Investment Programme. A list of participating financial institutions may also be accessed on the Central Bank’s website. The auction is open to investors whose applications for participation in the Investment Programme have been approved.
Bids are to be submitted no later than 28 March 2012. Further information can be found in the Terms of Auction, located on the Central Bank’s website.
According to the Central Bank’s 14 March release, the objective of these measures is to sell Icelandic krónur for foreign currency to parties that have opted to invest in the Iceland’s economy, or in Icelandic Treasury bonds for at least five years. As such, they contribute to the acquisition of economical long-term Treasury financing, and thereby reduce the Treasury’s refinancing need, as well as attract foreign capital to the country for long-term investment, thus facilitating the removal of Iceland’s capital controls.
The auction for the purchase of krónur is intended to enable investors to sell their ISK assets in a structured manner if they so choose. According to the Central Bank, the banks’ liquidity is strong enough to tolerate the movement of the krónur that the Central Bank is offering to purchase, and the above-mentioned repurchase of Treasury bonds diminishes the potential side effects of those transactions on the bond market.
According to the Central Bank’s auction calendar, further auctions are slated for 9 March and 20 June.
Further information may be obtained from Már Guðmundsson, Governor of the Central Bank of Iceland: +354 569 9600.